Now that the market is settling back to a normal, sustainable level of activity, and you can no longer put a house on the market for 10% higher than the last one (at least if you expect to sell it), accurate pricing is becoming more critical. There is a lot of misinformation out there on this subject. If I hear one more allusion to "dollars per square foot" I'm going to eat my MLS book . . . which is actually kind of an empty threat since they haven't been published in years.

Here's the crux of it: in the case of older homes (say more than 15 years), 75% and more of the value is in the land, not in the structure. By calculating the average dollars per square foot of recent sales and applying the result to a given property, you are fairly guaranteed to end up with a skewed number because, in the process, you have treated the dirt like it was part of the house which, unless you live in a starter teepee, it isn't. This explains why smaller homes sell for more per square foot than larger homes in the same area -- the land is constant. And, obviously, calculations made on dollars per square foot do not consider the condition of the house, lot size, lot utility, view, location, floor plan, etc -- items that can have a really major effect on value. A particularly egregious example are those websites that purport to give you the value of your home -- anyone who buys that is illustrating P T Barnum's most famous dictum.

Knowing this, why would anyone use dollars per square foot to price a house? In short, those who employ this method haven't seen any of the past sales whose square footage they are using, therefore can't compare condition, view, etc, to the property they're trying to price, and do not fit any reasonable definition of "knowing the market". The biggest culprits are out-of-the-area agents (who probably haven't seen a single other comparable house), and appraisers (who are lucky if they've seen one) -- they simply do not go out looking at properties in Palos Verdes while they're for sale, and once they've closed escrow it's pretty tough to get in. So they pull up the past sales on the Multiple Listing Service for a description of the properties. The problem is that when the listing agent wrote that description, he was trying to sell the house, and understandably presented it in the most glowing terms possible. The gap between the description and the Taj Mahal is probably therefore insufficient -- the "remodeled kitchen" in the listing may actually only have consisted of new linoleum and cabinet doors, whereas the property being priced might have a full-on "down to the studs" $100K kitchen remodel. But to someone who hasn't seen the sales, it's a wash. This also applies to the flatness of the lot, the toxic waste dump to which the "comp" backed, the fact that you had to walk thru the 3rd bedroom to get to the 4th one, the "panoramic view" which could only be appreciated while standing on the toilet in the powder room, etc, etc -- these are not things that a listing agent trying to sell a property will exactly feature in the listing or ads.

By now (hey -- wake up) you have probably figured out that the only way to accurately estimate the market value of a given home is to have seen the past sales while there were for sale. This is a time-consuming process, but is part of what you are paying a realtor for. Pricing a house is 90% art and 10% science (or, more accurately, 5th grade math). Realtors routinely go out looking at properties in the area in which they work, which implies a geographical limit to what is practical, both in terms of doing the looking and being able to recall anything useful later. Anyone who tells you that they "work Manhattan Beach thru Palos Verdes" is giving short shrift to at least half that area -- you simply can't know, in the sense we're discussing, an area that large. By continually looking at houses a good, organized agent will form a kind of mental grid which allows him to accurately estimate market value. If you're an engineer, the subjective implications will be distressing, but it can't be helped -- some things just can't be reduced to a formula.

The other aspect to this is what happens when a offer is presented. Clearly the buyer would like to buy your home as cheaply as possible, and it is part of his agent's job to help him. If he's good, the agent will arrive to present the offer armed with all the recent sales that make your asking price look downright confiscatory. Same thing -- the "remodeled kitchen", the "40,000 square foot lot" 80% of which is nearly vertical, the "stupendous view" from the toilet -- all will be used, as John Roseboro used to say, to "give you the jelly leg". You must have an agent who has actually seen those sales so that the linoleum, verticality, and bathroom, respectively, can be pointed out.

So add this to the long list of things for which you hire your agent. You may only see the fancy car and slick presentations, but there is an awful lot that goes on behind the scenes.